Weekend Reading #198

Photo by Christin Hume on Unsplash

This is the hundred-and-ninety-eighth weekly edition of our newsletter, Weekend Reading, sent out on Saturday 10th December 2022.

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What we’re thinking

As Tom Lee makes his return to prominence courtesy of the Twitter algos on my feed it usually means markets have gone up for a bit allowing the latest bout of perma-bull commentators to achieve prominence. Are we in the calm before the storm? Seems like it to us. We’ve had a nice rally and the edge has been taken off much of the pain endured by many for most of the year but in our view its most certainly not time to get complacent. If anything, it gives a great chance to move things around to prepare for what's coming. The China trade ticks merrily along despite everyone’s deep desire for it not to and many other parts of the market look ok for now. But we wouldn’t be getting too excited. We are still in a very strange environment and it is not going to get any easier.

On the topic of China, this headline was particularly interesting to us: “XI JINPING PROPOSES THAT CHINA WILL MAKE FULL USE OF THE SHANGHAI OIL, GAS TRADING CENTRE PLATFORM TO CARRY OUT YUAN SETTLEMENT OF OIL, GAS TRADE.”

Making such a proposal in Saudi to the GCC countries is a huge show of strength, striking straight at the heart of US power in the gulf, and even at the margin, being able to take some transaction share for energy away into CNY is a major structural change in the nature of the market.

And to top the week off, this chart appeared in our inboxes on Friday afternoon, showing equity mutual fund flows clocking in at 26 consecutive weeks of outflows (-US$254bn outflows), and 39 out of the last 40 weeks (-US$333bn outflows), while accelerating into year-end. That’s -US$16.5bn per week of outflows on average over the last month (-US$65bn in total), rivalled only by the GFC, the trade wars late 2018 and the Trump/Biden election in Oct 2020 (yes this is worse than Covid). Silver lining for the bulls? Historically stocks have typically traded up after such huge outflows – bulls have to hope this time isn’t different.

What we’re doing.

I had the audacity (according to one elderly lady who was there) to take my young daughters to the Royal Academy of Arts on Piccadilly to see the William Kentridge exhibition last weekend. It was a massive exhibition taking up multiple rooms of space and wow was it spectacular. My kids are obviously too small to understand the history, insights and nuance of his work but what they sure understood is the scale. Kentridge is a prolific artist and this exhibition featured everything from his favoured charcoal themed work on canvas to sculptures, tapestries, animated short films and his most recent opera. The man is a genius and surely one of the world’s great living artists. At 67, he is going stronger than ever. This was a full-on celebration of his work and I just hope my kids will take something away from it that they remember. The Royal Academy of Art website has a great video which I highly recommend watching to get a feel. DC

What we are reading.

I finished the second Dune book, Dune Messiah, which was nowhere near as good as the first title. It continues the reign of Paul Atreides, some 12 years after we left him at the end of the first book and to be honest despite lots of story building, it is rather uneventful until the final flurry of action. Still a deftly woven story with lots of moving parts and some great sci-fi but to be honest, I still prefer the Three Body Problem at this stage. The good news is that with 4 books to go (of the original author, Frank Herbert’s writings) there is lots of time for it to pick up the pace again!

A bizarre story arose in South Africa this week when a Russian vessel docked at the South Africa navy harbour in Simonstown. Simonstown is a small village on the “other” side of Cape Town, opposite to the more famous Atlantic Seaboard. It does however have one key historical feature – a navy harbour. The Russian vessel claimed to have mechanical trouble, citing this as the need to use the navy harbour rather than the commercial one. It happened in the dead of night in the middle of electricity “load shedding” and they didn’t seem to be fixing anything but rather offloading some unknown cargo. South Africa’s ruling party has deep historical ties with Russia and this article in the Daily Maverick seems to suggest the possibility that South Africa is helping the Russians circumvent international sanctions. An intriguing read. DC

Another fascinating development, which also brought in a bit of enlightenment about the Fed, hit the news this week, as legislation was introduced in the US by Senators Elizabeth Warren and Pat Toomey pertaining to none other than the Federal Reserve. It’s well known that Senator Warren REALLY dislikes bankers and generally blames them for most of the world’s misfortunes, but surely the Federal Reserve as the country’s Central Bank, and effectively an extension of the state (albeit not of “government”) would be excused? It turns out that’s quite to the contrary, as this new legislation effectively forces transparency upon the Fed, preventing them from refusing requests for information under the Freedom of Information Act – especially pertaining to recent questions about the ethics of bank governors. But perhaps MORE fascinating is that the Federal Reserve isn’t a single entity – as its website says, it’s the Federal Reserve System, comprising 12 regional banks which, as it turns out are privately incorporated entities. So, the central bank of the US (and in a way of the world) is run by 12 privately run and financed banks, whose profits are driven by the interest earned on the securities it owns, acquired through open market operations. One could almost say that DeFi wasn’t such a new thing after all. EL

What we’re listening to.

Impaulsive by Logan Paul isn’t my typical weekly listening but given his well-known status, the calibre of guests he attracts onto his show is quite remarkable. It was a relatively old episode, but this week I found myself listening to an episode from late 2019 when he had Jordan Belfort appearing as his guest. He begins with an insight into some of the untold stories that were considered too extreme for Martin Scorsese's, ‘The Wolf of Wall Street’ film, following which he delves into his views on society including the education system, politics, etc. He’s a great speaker and his overtly libertarian opinions seem refreshingly contrarian to much of today’s current discourse. HS

I came across a new podcast series called Empire, hosted by Anita Anand and William Dalrymple, the latter perhaps better known for his books on the rise and fall of the East India Company. The first episode that showed up on Apple Podcasts was actually episode 21, which marked the start of the second season of the podcast looking at the history of Byzantium, making its way to the rise of the Turks. But it also turns out that the first 20 episodes were on Dalrymple’s speciality, the EIC and its rise and fall in India. So far, halfway through the first series, many long-held cliches about British imperial power in India are already being overturned, while new facts get revealed. Some may rub the wrong way, but isn’t that the point of history, to tell the different perspectives of the past so that future generations can understand – and inadvertently judge – the deeds of the past? Here’s episode 1 – start here. EL

What we’re watching.

Andor on Disney Plus was a series suggested to us by a couple of friends, with the comment being that this was THE BEST Star Wars series ever. After a bit of disappointment with productions like The Eternals, having a good reason to turn on Disney Plus again was very welcome. And so far (without yet getting through the whole series, and despite a bit of a slow start), the legends are true. Music – tick; Cinematography – tick; storyline – triple tick. And yes, it’s a spy show too. No spoilers here, fortunately!

At risk of adding more to the state of crypto disillusionment, there was none other than Kyle Davies of Three Arrows Capital fame (or infamy) showing up on Hugh Hendry’s Acid Capitalist podcast, in two parts no less. Part 1 is here, with part 2 here. To be honest, spending almost two hours listening to Kyle Davies’ flippant reminiscences is a bit of a chore, but to really get wound up, it is best to watch the video interviews because that’s where the absolute lack of repentance actually shows. Hugh Hendry is one of the sharpest interviewers we can think of, especially within the financial space, and while he has been absolutely civil in this interview (compared to others where he’s obliterated his interviewee), perhaps most impressive is how he has managed to draw out and underscore how cavalier Davies truly is. EL